1985 (9) TMI 354 - HC - Indian Laws

Summary

Issues:
1. Whether the loan interest rate of 121/1% p.a. and 21% p.a. in case of default is excessive and usurious under the Usurious Loans Act 10 of 1918.
2. Adjustment of a fixed deposit amount towards the debt due.
3. Legality of the interest rate of 21% p.a. in case of default.
4. Applicability of the Banking Laws (Amendment) Act 1983 and S. 21-A of the Banking Regulation Act 10 of 1949.

Analysis:
1. The appeal questioned if the loan interest rate of 121/1% p.a. and 21% p.a. in case of default was excessive and usurious under the Usurious Loans Act 10 of 1918. The Court referred to the Madras Amendment Act 8 of 1937, which introduced provisions presuming a transaction unfair if the interest is excessive. The Court held that the Usurious Loans Act empowered relief if interest was found excessive and the transaction unfair, with criteria to determine excessiveness. The Madras Amendment eased the provision's rigour by adding presumptions and privileges for agriculturists.

2. The appellant contended that a fixed deposit amount of Rs. 10,000 in the plaintiff-bank should adjust towards the debt due, but the Court rejected this, stating that without a specific agreement or instructions, adjustment was not permissible. The absence of any agreement or instructions between the parties led to the dismissal of this contention.

3. The appellant argued that the interest rate of 21% p.a. in case of default was illegal, penal, usurious, and against public policy. The Court considered past cases where compound interest rates of 18% and 24% were deemed reasonable. However, the Banking Laws (Amendment) Act 1983 inserted S. 21-A in the Banking Regulation Act 10 of 1949, making the Usurious Loans Act inapplicable to transactions between banking companies and debtors. As the debtor was not an agriculturist, S. 21-A governed the debt, rendering the Usurious Loans Act irrelevant.

4. S. 21-A of the Banking Regulation Act 10 of 1949 stated that the rate of interest charged by a banking company in a transaction with its debtor could not be scrutinized by courts for excessiveness, overriding the Usurious Loans Act. This provision made it clear that the Usurious Loans Act no longer applied to debts owed to banking companies. Consequently, the Court dismissed the appeal as the Usurious Loans Act was no longer relevant due to the Banking Laws Amendment Act 1983 and S. 21-A.

In conclusion, the Court dismissed the appeal based on the inapplicability of the Usurious Loans Act to debts owed to banking companies under the Banking Laws (Amendment) Act 1983 and S. 21-A of the Banking Regulation Act 10 of 1949.